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Quick Facts

Cuba’s economic freedom score is 29.6, making its economy one of the world’s least free. Its overall score is 0.9 point higher than last year, with a slight deterioration in monetary freedom outweighed by improvements in three of the 10 economic freedoms, including trade freedom, fiscal freedom, and freedom from corruption. Cuba is ranked least free of 29 countries in the South and Central America/Caribbean region, and its overall score is significantly lower than the regional average.

In recent years, the government has made measured concessions to encourage more entrepreneurship and private-sector growth. Communist Party–endorsed reforms to cut government payrolls and expand approved professions have not been broad enough to ensure any meaningful advancement in overall economic freedom. The state continues to interfere in most economic activity. Price controls are pervasive, and the two-tiered exchange rate regime continues to distort prices.

Despite membership in the World Trade Organization, the economy remains relatively cut off from the international marketplace. Only state enterprises are allowed to engage in international trade and investment. The state uses an oppressive regulatory environment to suppress entrepreneurial activity and controls most means of production. Shallow credit markets impede access to credit for business activities.

Background

A one-party Communist state, Cuba depends on external assistance (chiefly oil subsidies provided by Venezuela and remittances from Cuban émigrés) and a captive labor force to survive. Property rights are severely restricted. Fidel Castro’s 83-year-old brother Raúl continues to lead both the government and the Cuban Communist Party. Workers’ wages are not enough to live on, the agriculture sector is starved for investment, and tourism revenue is volatile. Under Raúl Castro, violent repression of civil society and of dissidents has increased dramatically. Much-touted “free-market reforms” have proven to be cosmetic changes in what remains a socialist state. Restrictions on foreign travel have been eased, but certain Cubans are still barred from leaving.

Although the perceived level of corruption has traditionally been far lower in Cuba than in other Latin American countries, it remains a considerable systemic problem. Low salaries for public officials and the dual exchange rate provide incentives for illicit enrichment. Only state enterprises may enter into economic agreements with foreigners as minority partners. Most means of production are owned by the state.

Cuba’s top individual income tax rate is 50 percent, and its top corporate tax rate is 30 percent. Other taxes include a property transfer tax and a sales tax. The overall tax burden equals 20.5 percent of domestic production. Public expenditures account for 60.2 percent of the domestic economy, and public debt is equal to about 38 percent of gross domestic product.

Private entrepreneurship exists only on a very small scale. The inconsistent and non-transparent application of regulations impedes the creation of new businesses. The rigid, state-controlled labor market has helped to create a large informal economy. The government tries to contain inflation directly by using price controls and regulating the limited areas of free-market activity and indirectly by controlling monetary growth.

Cuba’s average tariff rate is 8.1 percent. The country’s centrally planned economy is a barrier to the free flow of international trade and investment. The financial sector is tightly controlled by the state. Over a dozen foreign banks have opened representative offices, but they are not allowed to operate freely. Credit is not allocated on market terms, and capital markets remain underdeveloped.